The Carf (Administrative Council of Tax Appeals) decided that there should be no tax collection on profits distributed based solely on the revaluation of the value of a property – when the company updates the value of the asset to reflect the market price, without actually selling it.
In the case analyzed, a real estate company that manages a shopping mall in Rio de Janeiro reassessed the property’s value and, as a result, recorded an accounting profit. This amount was used to distribute dividends, but the asset itself remained in the company’s assets.
The Federal Revenue Service understood that this constituted a capital gain and attempted to levy taxes on the transaction. The Carf (Brazilian Federal Revenue Service), on the other hand, dismissed this charge, understanding that there was no actual revenue inflow and, therefore, no taxable event.
According to the case rapporteur, the recorded gain represents only an expectation, which may or may not materialize. Therefore, there is no legal basis for anticipating the collection of taxes before the asset is realized, such as in a sale, write-off, or depreciation.
The decision is relevant because the National Treasury Attorney’s Office did not appeal, which signals a possible consolidation of the understanding at the administrative level.
Taxpayers who have been fined in similar situations can – and should – challenge the requirement, either in the administrative or judicial sphere.
